NVIDIA was downgraded unusually, analysts say valuation is worrying, stock price fell more than 2% at one point
Almost all analysts on Wall Street are optimistic about NVIDIA, but Pierre Ferragu, an analyst at New Street Research, has issued a warning on NVIDIA's stock. He believes that unless in a bull market, NVIDIA's future upside potential is limited, hence he downgraded the rating to neutral. In addition, he set a target price of $135 for NVIDIA, which is 5% higher than Wednesday's closing price. He mentioned that NVIDIA's current P/E ratio may be too high, but the fundamental quality of NVIDIA has not changed, and he only recommends buying when the stock price continues to be low
Analyst Pierre Ferragu believes that NVIDIA's valuation is concerning.
On Friday, July 5th, Eastern Time, Pierre Ferragu, an analyst at New Street Research, issued a warning on NVIDIA's stock. He downgraded the stock to "Neutral" and stated that unless in a bull market, NVIDIA's stock has limited upside potential.
In his report, he wrote:
"We are downgrading the stock to Neutral today because the stock only has upside in a bull market scenario, i.e., a significant improvement in prospects after 2025, which we are not sure will materialize at this point."
He also mentioned that the revenue model indicates NVIDIA's growth rate will slow to a moderate level, with GPU revenue expected to increase by only 35% next year.
Based on NVIDIA's P/E ratios in 2019 and early 2020 (35 times), he set a target price of $135 for NVIDIA, which is 5% higher than Wednesday's closing price. Ferragu further pointed out that NVIDIA's P/E ratio may decrease as the current stock price is 40 times the expected earnings in the next 12 months, while the P/E ratio dropped to 20 times when growth slowed to 10% in 2019.
Nevertheless, he believes that the company's fundamental quality remains intact and would consider buying again only when NVIDIA's stock price remains depressed.
Currently, there are very few analysts on Wall Street with a negative view on NVIDIA. According to TipRanks.com data, out of 41 analysts, 38 recommend buying NVIDIA stock, 3 recommend holding, and none recommend selling. Only German DZ Bank downgraded NVIDIA's rating from Buy to Hold in May this year.
Despite almost all analysts being optimistic about NVIDIA, New Street Research goes against the trend and is one of the few analysts bearish on NVIDIA.
Thanks to the launch of ChatGPT at the end of 2022, sparking a wave of AI technology, NVIDIA's stock price has risen by 159% this year. However, in recent weeks, NVIDIA's stock price has fallen as some investors chose to lock in profits. Overnight on Friday, NVIDIA's stock price in pre-market trading fell by over 2.02%, hitting a daily low of $125.68.
